Question 1

The Chicago Board Options Exchange (CBOE) was the first exchange devoted solely to the trading of options.

True

False

Question 2

What reflects the degree to which the rate on the option's underlying asset moves relative to the spot rate on the asset or liability that is being hedged?

Credit risk.

Basis risk

Hedge risk.

Volatility.

Open interest.

Question 3

A bond call option gives the holder the right to sell the underlying bond at a pre-specified exercise price.

True

False

Question 4

The buyer of a bond put option stands to make a profit if changes in market interest rates cause the bond price to fall below the exercise price by enough to recoup the option premium paid.

True

False

Question 5

The purchaser of an option must pay the writer a

strike price.

market price.

margin.

premium.

basis.

Question 6

The writer of a bond call option

receives a premium and must stand ready to sell the bond at the exercise price.

receives a premium and must stand ready to buy bonds at the exercise price.

pays a premium and has the right to sell the underlying bond at the agreed exercise price

pays a premium and has the right to buy the underlying bond at the agreed exercise price.

pays a premium and has the obligation to buy the underlying bond at the agreed exercise price.

Question 7

A contract that results in the delivery of a futures contract when exercised is a

put option.

call option

naked option.

futures option.

credit spread call option.

Question 8

The outstanding number of put or call contracts is called

open interest.

pull-to-par.

cap.

floor.

collar.

Question 9

Using the proceeds from the simultaneous sale of a floor to finance the purchase of a cap is to open a position called a

open interest.

pull-to-par.

cap.

floor.

collar.

Question 10

An FI concerned that the risk on a loan will increase can

purchase a credit spread call option.

sell a credit spread call option.

sell a credit spread put option.

purchase a naked option.

sell a naked option.